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Climate risk: the need for carbon credit insurance

Climate Risk is InsTech’s monthly newsletter dedicated to climate-related insurance news – you can sign up for free here.

The need for carbon credit insurance

The development of a market for trading carbon credits has become a well-established means of incentivising carbon reduction strategies around the world.

Carbon credits are derived from measurable emission reductions from certified projects. Companies are able to buy or sell carbon credits. Examples of projects that generate carbon credits include planting trees and investment in renewable energy.

Each credit corresponds to one metric ton of reduced, avoided or removed CO2 or equivalent greenhouse gas (GHG) emissions. A carbon credit can be used by a company to offset or compensate for the emission of one ton of CO2 or equivalent gases.

The quality of carbon credits can vary significantly. For example “emission avoidance” credits are of lower quality than reforestation projects. There is the risk that some of these lower quality credits may be invalidated. There is also a physical risk of loss for some types of credits, such as wildfire destroying trees. Insurance against these events is an area of increasing interest in which we’re seeing established companies and start-ups getting involved.

InsTech in London: All Sorts – An Evening of Insurtech Treats

Join us on 27th April at CodeNode where Matthew, Robin and the InsTech team will introduce some new finds and catch up with some old friends. Companies include Kita, which is aiming to provide insurance for the voluntary carbon markets, and Claims Carbon which helps insurers calculate their carbon footprint within operations and the supply chain. Register now – free of charge for members.

Jupiter Intelligence: The climate change risks that can’t be ignored

Jupiter Intelligence provides analytics on the impact of climate change to insurers, governments and corporations globally. In this podcast, CEO and Co-founder Rich Sorkin joins Matthew to discuss how his experience of extreme weather events motivated him to launch the company.

In the news…

Swiss Re: $20bn insured flood losses in 2021

Swiss Re’s latest Sigma report states that over 50 severe flooding events in 2021 contributed to a total economic loss of $80 billion of which only $20 billion was insured, meaning a flood protection gap of 75%. Beyond flood events, in 2021 natural catastrophes resulted in economic losses of $270 billion and insured losses of $111 billion.

Zesty.ai secures $10m and Founder & CEO testifies on California wildfires

Zesty.ai has secured $10 million from US-based fintech company, Brex. This comes a week after Founder and CEO Attila Toth spoke to the California Senate explaining that the tools used by the insurance industry to understand recent weather phenomena are outdated. Using these tools puts an estimated $1.3 trillion in Californian property at risk of losing affordable insurance. Toth urges the senate to support insurers that target risk reduction efforts in high-risk regions by using new technologies and incorporating the extra information it provides into their underwriting and rating plans.

RMS expands climate change models

The new models will cover US flood, US wildfire and Japan typhoon, including tropical cyclone induced inland flood. Additionally, the current North Atlantic Hurricane Climate Change Model will incorporate sea-level rise projections for the US. The solutions include climate change advisory and consulting expertise and regulatory, ESG and TCFD support.

dClimate partners with Namibia to create registry for hydrogen projects

Founded in 2021, dClimate offers a decentralised marketplace where climate data, forecasts and models can be standardised and distributed. The company was founded by the co-founders and principal executive officers at parametric platform Arbol. The partnership, enabled through the University of Namibia, will see dClimate establish a blockchain registry and verification system for quantifying the country’s carbon sequestration, carbon emissions and carbon credits from green hydrogen projects.

Arturo: How to move towards a “predict and prevent” mindset

Arturo’s recent paper explores where property is today along the technology adoption curve compared to automotive, how climate change is making it more difficult to do “business as usual” and how AI can help mitigate wind and hail events, which tend to comprise the majority of claims. Look out for our podcast in April with Arturo CEO John-Isaac Clark.

Marsh launches ESG risk assessment tool

Marsh is offering a self-assessment tool, ESG Risk Rating, which can be used to score an organisation’s performance across 18 ESG themes. The assessment is free and companies can share their score with external stakeholders. As part of this offering, Liberty Mutual Insurance will offer its clients in the US and Canada who opt-in to Marsh’s ESG Risk Rating complimentary access to risk advisory services relating to sustainability and climate-related risks and opportunities.

CAPE Analytics partners with Cypress

Cypress Property & Casualty Insurance Company will use CAPE Analytics’ property intelligence to make faster underwriting decisions and to improve its renewal process. Cypress will also be able to mitigate various risks, including hurricanes and other weather events, for residential and commercial properties.

Nasdaq launches carbon removal index

The new commodity reference price indexes aim to create transparency that encourages investment and supports project financing decisions. The indexes will follow the price of Carbon Removal Certificates (CORCs) issued by Puro.earth, a marketplace for carbon removal in which Nasdaq acquired a majority stake in June 2021.

Verisk assembles Climate Advisory Council

The council aims to help organisations better understand the impacts of climate change and inform their climate resilience and sustainability efforts. Members of the council will provide guidance and feedback on climate change solutions Verisk is developing, such as the climate conditioning of the company’s extreme event models. In the InsTech Climate Change Risk Regulation and Measurement report, we profile Verisk and its offerings in the climate change space.

ICEYE partners with Fermat

Fermat Capital Management, one of the largest investment managers in the insurance-linked securities (ILS) sector, has announced a collaboration in which ICEYE will provide Fermat with flood hazard data and support research and development into other natural perils such as wildfires.

Lemonade creates “coalition” for parametric weather insurance

Lemonade, the US-based insurer founded in 2015, has partnered with various companies to plan and launch parametric insurance for smallholder farmers. The “Crypto Climate Coalition” brings together Chainlink, Avalanche and DAOstack to utilise their knowledge of blockchain technology whilst Etherisc, Hannover Re, Pula, Tomorrow.io and TomorrowNow.org will help to create the weather insurance models.

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